More Bond Traders Sued By The SEC For Alleged Fraudulent Misrepresentations Relating To MBS Prices


More Bond Traders Sued By The SEC For Alleged Fraudulent Misrepresentations Relating To MBS Prices

More Bond Traders Sued By The SEC For Alleged Fraudulent Misrepresentations Relating To MBS Prices


On May 15, 2017, the Securities and Exchange Commission sued two commercial mortgage backed securities (“CMBS”) traders for securities fraud allegedly committed while buying and selling CMBS on behalf of a large broker-dealer during the course of their employment at the firm. SEC v. Chan, S.D.N.Y, 1:17-cv-3605; SEC v Im, S.D.N.Y, 1:17-cv-3613. These are the latest in a slew of recent lawsuits that have been brought by the SEC and DOJ as part of a federal crackdown on allegedly deceptive bond trading practices, but the DOJ is notably absent from this latest case.

The SEC’s complaints against the two traders, Kee Chan and James Im, allege that in the course of acting as an intermediary on trades with customers who sought to buy and sell CMBS on the secondary market, the traders deliberately misled and lied to customers about (1) the prices at which their firm bought or sold securities involved in trades, (2) the bids and offers the firm made or received on such securities, (3) the compensation the firm would receive for intermediating the trades, and/or (4) who owned the securities at issue, often pretending that they were still negotiating over a security with third-party sellers when the firm had, in fact, already acquired the security. SEC v. Chan, S.D.N.Y, 1:17-cv-3605, Compl. at 2 [ECF No. 1] (May 15, 2017); SEC v Im, S.D.N.Y, 1:17-cv-3613, Compl. at 2 [ECF No. 1] (May 15, 2017). The Complaints also allege that Chan sent an altered email to a customer in order to “corroborate” a lie about what he bid for a security, and that Im bragged to a seller about his purposeful deception of the buyer. Id. The SEC alleges these improper practices generated hundreds of thousands of dollars in ill-gotten trading profits for the traders’ CMBS desk—profit that the SEC claims was passed on to Im and Chan in the form of bonuses and compensation. Id. at 2-3. The Complaints seek judgments ordering permanent injunctive relief, disgorgement with prejudgment interest, and civil monetary penalties.

On May 16, 2017, Chan settled the claims against him without admitting or denying the allegations in the SEC’s Complaint by agreeing to disgorge $51,965, pay prejudgment interest in the amount of $11,758, and pay a civil penalty of $150,000. SEC v. Chan, S.D.N.Y, 1:17-cv-3605, Consent Judgment at 1, 3 [ECF No. 7] (May 16, 2017). Im is contesting the claims against him, and will likely argue (among other things) that any misstatements he made were immaterial to investors.


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